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"Maybe we will be ready in 2002, but I would like to have a successful IPO in 2003."
——Bertelsmann CEO Thomas Middelhoff

MIDDELHOFF MUZZLES MINIONS

Losses Are Getting Bigger—And Leon’s Getting Larger!—As Company Readies For Flotation
Following reports of mounting losses, Bertelsmann is planning a cost-cutting program and a series of disposals as it prepares to go public, driving speculators to speculate that BMG may be put on the block. As a result, Bertelsmann CEO Thomas Middelhoff has asked his executives to keep their damn traps shut, or else.

The move to silence executives comes amid concern that unauthorized statements are contributing to a perceived division within the German media giant at a time when it is focusing on a possible 2003 IPO. The company had reportedly been preparing for a public offering in 2004, but Middelhoff, leading by example, has insisted that the company will be ready earlier. "Maybe we will be ready in 2002, but I would like to have a successful IPO in 2003," he said.

In an internal memo last week calling for a cultural "revolution," Middelhoff told staffers he is aiming to improve margins as he prepares the privately owned group for life as a public company. "Our aim is to achieve a return on sales of at least 10% in the next three years," he wrote. "Bertelsmann from today is preparing for a possible floatation." Say what?

However, despite Middelhoff’s profit goals, insiders note that neither BMG nor Bertelsmann’s book clubs will be able to come even close, leading to speculation the units will be jettisoned. BMG will post a loss for the first time in its 15-year history this year—reportedly a whopping $150 million—while the book clubs are currently undergoing restructuring after years of decline. Additionally, several of Middelhoff’s new-media investments have yet to show a return.

As part of the cost-cutting drive, Bertelsmann eCommerce Group (BeCG) has already decided to close its Hamburg office. According to sources, the group will drastically scale back its plans for Internet investments.

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